The IFRS for SMEs
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Topic 3.8
Quiz and Discussion
Section 9 Consolidated and Separate
Financial Statements
Section 19 Business Combinations
and Goodwill
© 2011 IFRS Foundation
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The accounting requirements applicable to small and medium-sized entities
(SMEs) are set out in the International Financial Reporting Standard (IFRS)
for SMEs, which was issued by the IASB in July 2009.
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© 2011 IFRS Foundation
Sections 9 & 19 – Discussion questions 3
Question 1: A owns 30% of voting interests
in Z and owns convertible debt issued by Z
such that, if A chose to convert now, it
would have a 60% voting interest in Z.
How should A account for its investment in
Z?
a. Consolidate?
b. Equity method?
c. Whatever policy A has adopted for
its other associates?
© 2011 IFRS Foundation
Sections 9 & 19 – Discussion questions 4
Question 2: Same as question 1. A also
prepares separate financial statements in
compliance with the IFRS for SMEs.
How should A account for its investment in
Z in its separate financial statements?
a. Cost less impairment?
b. Fair value with changes in profit or
loss?
c. Choose an accounting policy of either
a. or b. above?
© 2011 IFRS Foundation
Sections 9 & 19 – Discussion questions
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Question 3: A owns 60% of voting interest
in B.
B owns 70% of voting interest in C.
How should A account for its investment in
C in its consolidated financial statements?
a. Consolidate?
b. Equity method?
c. Whatever policy A has adopted for
its other associates?
© 2011 IFRS Foundation
Sections 9 & 19 – Discussion questions
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Question 4: A owns 60% and 30% of voting
interest in B and C respectively.
B also owns 30% of voting interest in C.
How should A account for its investment in
C in its consolidated financial statements?
a. Consolidate?
b. Equity method?
c. Whatever policy A has adopted for
its other associates?
© 2011 IFRS Foundation
Sections 9 & 19 – Discussion questions
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Question 5: A owns 100% of C. C sells
goods to A at 25% markup on cost. At year
end A holds goods purchased from C at a
cost of 125. The group (A & C consolidated)
should measure this inventory at:
a. 125?
b. 100?
c. 75?
d. 150?
© 2011 IFRS Foundation
Sections 9 & 19 – Discussion questions
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Question 6: P owns 100% of shares of S.
In which cases need P not prepare
consolidated financial statements?
a. P is a clothing retailer and S is a
construction contractor?
b. P acquired two subs, R and S, and
intends to resell S within 12 months?
c. Same as b, but S is P’s only sub?
d. A owns 100% of P, and A prepares IFRS
financial statements?
e. S is in bankruptcy and being managed
by a court-appointed trustee.
© 2011 IFRS Foundation
Sections 9 & 19 – Discussion questions
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Question 7: P buys 60% of S for 100. FV of
S’s assets = 120. FV of S’s liabilities = 50.
How much goodwill and NCI is recognised?
a.
b.
c.
d.
e.
Goodwill 30 and NCI 28
Goodwill 30 and NCI 0
Goodwill 58 and NCI 28
Goodwill 97 and NCI 67
More than one of the above is
permitted by the IFRS for SMEs
© 2011 IFRS Foundation
Sections 9 & 19 – Discussion questions
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Question 8: P buys 100% of S from Mr X. P
pays 100 up front and agrees to pay Mr X
another 60 if the patents for which S has
applied are granted. Both P and Mr X think
there’s a ‘better than even’ chance of the
patents being granted. FV of S’s identifiable
net assets is 80. How much goodwill is
recognised at acquisition date?
a. 20
b. 35
c. 60
© 2011 IFRS Foundation
d. 80
Sections 9 & 19 – Discussion questions
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Question 9: Similar to question 8 except
both P and Mr X think there’s a ‘less than
even’ chance of the patents being granted.
FV of S’s identifiable net assets is 80.
How much goodwill is recognised at
acquisition date?
a. 20
b. 35
c. 60
© 2011 IFRS Foundation
d. 80
Sections 9 & 19 – Discussion questions
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Question 10: Since its formation Z was
owned 75% by A & 25% by B. When Z’s
equity was CU100,000, A acquired B’s 25%
interest in Z at its fair value of CU60,000.
How would A present the acquisition of
the shares in Z in its consolidated
statement of changes in equity?
© 2011 IFRS Foundation
Sections 9 & 19 – Discussion
questions
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Question 10 continued: A presents a separate
line item in which it shows:
a. CU25,000 as a reduction in NCI?
b. CU60,000 as a reduction in NCI?
c. CU25,000 as a reduction in NCI &
CU35,000 as a reduction in retained
earnings.
© 2011 IFRS Foundation
Sections 9 & 19 – Discussion questions
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• Question 11: Same as question 10 except
A sold 25% of the shares in Z. A did not
lose control of Z.
• How would A present the disposal of the
shares in B in its consolidated statement
of changes in equity?
© 2011 IFRS Foundation
Sections 9 & 19 – Discussion
questions
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Question 11 continued: A presents a separate
line item in which it shows:
a. CU25,000 as an increase in NCI?
b. CU60,000 as an increase in NCI?
c. CU25,000 as an increase in NCI &
CU35,000 as an increase in retained
earnings.
© 2011 IFRS Foundation
Sections 9 & 19 – Discussion questions
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Question 12: On 1/1/20X1 A has 100 issued
voting shares. On 2/1/20X1 A acquires 100%
of B from B’s shareholders in exchange for
150 A voting shares.
Who is the acquirer in this business
combination?
a. A?
b. B?
c. Neither A nor B?
© 2011 IFRS Foundation
Sections 9 & 19 – Discussion questions
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Question 13: A & B transfer their businesses
to Z. In return A & B each receive 50% of the
voting shares in Z. A & B each appoint 3
members to Z’s 6 member board of directors.
A also appoints the chairman of Z. The
chairman has a casting vote.
Who is the acquirer?
a. A?
b. B?
c. Neither A nor B?
© 2011 IFRS Foundation